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Wall Street or Main Street: Who to Bail Out?

Job market paper - [slides] [draft]

Housing crises are characterized by an increase in foreclosure rates that generates losses to mortgage investors. To preserve their solvency, governments have historically implemented two policies: a) offer bailouts to investors (Wall Street), and b) offer subsidies to mortgage refinancing of households to prevent additional foreclosures (Main Street). This paper studies the welfare maximizing bailout-subsidy policy for the case of the Great Recession, shaped by two frictions: a dead-weight loss of 20% on the house value that occurs during the foreclosure process, and an information friction on individual house prices that leads households to engage in strategic default to qualify for the subsidy program. I quantitatively assess the welfare maximizing policy in a heterogeneous agents’ economy and find that a subsidy-only policy would have generated welfare gains of up to 0.4%, measured as consumption equivalent variation, as compared to the baseline calibration that matches TARP and HAMP programs. In contrast, a bailout-only policy would have generated a welfare loss of 0.8%.

A Practical Guide to Parallel Computing in Macroeconomics

with Jesús Fernández-Villaverde - [slides] [latest version] [NBER working paper]

Parallel computing opens the door to solving and estimating richer models in Economics. From dynamic optimization problems with high dimensionality to structural estimation with complex data, readily-available and economical parallel computing allows researchers to tackle problems in Economics that were beyond the realm of possibility just a decade ago. This paper describes the basics of parallel computing for economists, reviews widely-used implementation routines in Julia, Python, R, Matlab, C++ (OpenMP and MPI) and CUDA and compares performance gains using as a test bed a standard life-cycle problem such as those used in macro, labor, and other fields.

The Effects of Student Loans on the Provision and Demand for Higher Education

with Rodrigo Azuero - [slides] [draft]

This paper characterizes the general equilibrium outcomes of the tertiary education market in a context where borrowing constraints bind, there is a two-tier college system operating under monopolistic competition in which colleges differ by quality offered and returns to education depend on school quality. The paper shows that a widening of the gap in quality supplied by tertiary education institutions can be a by-product of subsidized student loan policies and illustrates the main results through a numerical exercise applied to the case of Colombia, which underwent a rapid expansion in the supply of subsidized student loans during the past decade.

Wall Street or Main Street: Who to Bail Out?

Job market paper - [slides] [draft]

Housing crises are characterized by an increase in foreclosure rates that generates losses to mortgage investors. To preserve their solvency, governments have historically implemented two policies: a) offer bailouts to investors (Wall Street), and b) offer subsidies to mortgage refinancing of households to prevent additional foreclosures (Main Street). This paper studies the welfare maximizing bailout-subsidy policy for the case of the Great Recession, shaped by two frictions: a dead-weight loss of 20% on the house value that occurs during the foreclosure process, and an information friction on individual house prices that leads households to engage in strategic default to qualify for the subsidy program. I quantitatively assess the welfare maximizing policy in a heterogeneous agents’ economy and find that a subsidy-only policy would have generated welfare gains of up to 0.4%, measured as consumption equivalent variation, as compared to the baseline calibration that matches TARP and HAMP programs. In contrast, a bailout-only policy would have generated a welfare loss of 0.8%.

A Practical Guide to Parallel Computing in Macroeconomics

with Jesús Fernández-Villaverde - [slides] [latest version] [NBER working paper]

Parallel computing opens the door to solving and estimating richer models in Economics. From dynamic optimization problems with high dimensionality to structural estimation with complex data, readily-available and economical parallel computing allows researchers to tackle problems in Economics that were beyond the realm of possibility just a decade ago. This paper describes the basics of parallel computing for economists, reviews widely-used implementation routines in Julia, Python, R, Matlab, C++ (OpenMP and MPI) and CUDA and compares performance gains using as a test bed a standard life-cycle problem such as those used in macro, labor, and other fields.

The Effects of Student Loans on the Provision and Demand for Higher Education

with Rodrigo Azuero - [slides] [draft]

This paper characterizes the general equilibrium outcomes of the tertiary education market in a context where borrowing constraints bind, there is a two-tier college system operating under monopolistic competition in which colleges differ by quality offered and returns to education depend on school quality. The paper shows that a widening of the gap in quality supplied by tertiary education institutions can be a by-product of subsidized student loan policies and illustrates the main results through a numerical exercise applied to the case of Colombia, which underwent a rapid expansion in the supply of subsidized student loans during the past decade.